Fix-and-Flip Loans for Bad Credit

The rise in house flipping for profit is expected to continue over the next few years. One firm estimates 24 million homes are entering the right age for renovations, potentially expanding opportunities for home flippers nationwide. 

But most rehabbers don’t pay cash for these projects. Instead, they use fix-and-flip loans to finance purchasing and renovating properties before reselling them for a profit. The proceeds from the sale are used to repay the lender, and the borrower keeps the remaining funds as profit. 

Many fix-and-flip loan lenders don’t rely too heavily on personal credit scores and instead focus on specific project details. This makes it possible for individuals with poor credit to get approved. Here’s everything you need to know about fix-and-flip loans for bad credit and where to find one. 

Where to get fix-and-flip loans for bad credit

Securing the right financing can be crucial for those with bad credit when embarking on a fix-and-flip investment journey. 

We selected the lenders below based on criteria crucial to the success of fix-and-flip projects: interest rates, loan terms, speed of funding, and flexibility in terms of property condition. 

Each of the following lenders offers unique benefits tailored to meet the needs of investors with various credit backgrounds. Click the lender’s name in the table for details about its fix-and-flip loans for poor credit.

Lender	Biggest benefits
New Silver	Quick funding and borrower incentives
Bluevine	User-friendly and flexible financing
Kapitus	Competitive rates and terms
OnDeck	Short-term loans with streamlined application
Funding Circle	Tailored loans and focus on long-term solutions

New Silver: Best fix-and-flip loans for beginners with bad credit

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• Ideal for beginners needing to close deals quickly
• Attractive financing options for fix-and-flip projects
• Borrower incentives, including $500 credit* at closing

*Available in February 2024

New Silver stands out as a prime choice for beginners in fix-and-flip investing, particularly those with bad credit. It specializes in real estate investment loans, offering quick approval and funding processes that are essential for investors looking to quickly move on opportunities. 

With a deep understanding of the real estate market, New Silver provides flexible lending solutions that accommodate the diverse needs of investors, making it a robust partner for those starting in the fix-and-flip arena.

Bluevine: Best for fix-and-flip line of credit

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• Offers lines of credit for ongoing projects
• Streamlines the application process for efficiency
• Adapts to changing project needs with ease

Bluevine is an excellent option for beginners seeking flexible funding for their fix-and-flip projects. Its lines of credit provide continuous access to funds, an advantage for investors with multiple projects or evolving funding needs. 

Bluevine simplifies the financing process with an easy application, allowing investors to concentrate on their renovation projects while managing finances effectively.

Kapitus: Best for customization

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• Tailors financing solutions to specific business needs
• Focus on small and mid-sized businesses
• Offers favorable financing conditions for beginners

Kapitus serves small- to mid-sized businesses, including those venturing into fix-and-flip projects, with tailored financing solutions that support various business needs. 

Its approach to offering customized loan products means it can provide competitive and flexible financing options, making it a go-to for beginners with poor credit looking for supportive loan terms.

OnDeck: Best for fast funding

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• Can provide funds within 24 hours
• Focuses on immediate financing needs for projects with short-term loans
• Streamlined application ensures quick decisions to aid fast-moving market opportunities

OnDeck is known for its rapid funding, an essential feature for beginners in fix-and-flip investing needing to act fast. 

Its specialization in short-term loans for business needs, combined with a streamlined application process, makes it a valuable resource for investors with bad credit looking for efficient and swift financial support.

Funding Circle: Best for growing businesses

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• Supports established fix-and-flip ventures
• Advantageous loan conditions for long-term financing
• Provides ongoing support and guidance throughout the loan process

Funding Circle is suited for beginners who have begun to establish their presence in the fix-and-flip market. With competitive rates and flexible terms, it offers long-term financing solutions that cater to more established businesses. 

Its commitment to building lasting relationships with borrowers ensures valuable support for investors seeking to expand their real estate ventures.

What do bad-credit borrowers need to know about fix-and-flip loans?

Some investment lenders consider your personal credit score, while others do not. Regardless, there are a few things you should know about taking out a fix-and-flip loan:

• The lender may not consider credit but will look at the deal and your previous deal history. Be prepared to show detailed financial projections on the project and asset statements (including accounts or other properties you own).
• You may be required to sign a personal guarantee, which puts your assets at risk if you can’t make payments or sell the property. Because of this, fix-and-flip loans are best for borrowers who have experience in flips and are confident in their business plans. 
• If you don’t have any experience, you may want to start by partnering with a more seasoned flipper for your first deal or serving as a passive investor to learn the process. This may give you more access to more loan options since some lenders require at least one successful deal before you apply. 
• Have a clear exit strategy before taking on the risk of a fix-and-flip loan. Your goal may be to resell the property immediately after completing renovations. But prepare for other options if market conditions change, such as holding it to lease. This requires refinancing the loan, but many private lenders offer this option. 

Fix-and-flip loans vs. hard money loans

Fix-and-flip loans and hard money loans are similar but with a few key differences. 

	Fix-and-flip loans	Hard money loans
Underwriting	✅	❌
Interest rates	⬇️	⬆️
Max loan-to-value ratio	⬆️	⬇️

Fix-and-flip loans undergo more underwriting because they fund both the purchase and the renovation costs. A hard money loan, on the other hand, is based solely on the value of the purchase, with little review of the personal finances or deal history. 

Interest rates are usually higher on hard money loans because no underwriting is done to approve the loan. Another factor is that the maximum loan-to-value ratio (the amount you can borrow in relation to the property value) is lower when opting for a hard money loan. 

How do the terms of my fix-and-flip loan affect the project’s viability? 

You usually make interest-only payments during a fix-and-flip loan, making it more affordable than a personal home loan. The principal is paid off when you sell the property. But even if those monthly payments fit your budget, you still need to ensure the project numbers make sense.

Consider the 70% rule when evaluating properties to buy. That means you should pay no more than 70% of the after-repair value minus your projected repair costs. 

Also factor in the interest you’ll pay, lender origination fees, and other potential expenses like closing costs and prepayment penalties. 

Pros and cons of fix-and-flip loans for bad credit 

Fix-and-flip loans for bad credit come with advantages and disadvantages to weigh before you decide. 

Pros

• Fast approval times

  Working with a private lender is usually much quicker than a traditional bank.

• Flexible underwriting

  Instead of focusing on your personal credit history, fix and flip lenders look at the deal and your history with flips. 

• Finance purchase and renovations

  Fix and flip loans typically provide funds for the purchase, plus ongoing draws to cover renovation costs. 

Cons

• 100% financing not available

  You still need cash to cover a portion of the property purchase price. 

• Higher interest rates

  Rates increase alongside the lender’s risk on the project, even if they don’t do any credit checks.

• Potential for expensive origination fees

  Many lenders charge an origination fee, often between 1.5 and 3% of the loan amount. 

Risks of fix-and-flip loans for bad-credit borrowers

All fix-and-flip projects come with a level of risk regardless of your credit history. Here are some factors to consider, especially if you have limited experience with house flipping.

Budgeting

Perhaps the biggest risk is spending too much on the property and renovations and being unable to sell it for a profit. Be realistic with your projections and the local real estate market trajectory. 

Project selection

Most houses picked for flipping need some work. The best selection usually includes older homes that need updating and short sales or foreclosures that require a quick sale. 

Contingency planning

Many older homes bought for flipping may reveal structural issues or other unseen surprises besides aesthetic upgrades. Budget 10% to 20% of your cost projections to cover unexpected repair needs, like faulty wiring or foundation issues.  

Preparing for a worst-case scenario is the best way to mitigate risk during a house flipping project. Usually, this means access to additional cash reserves to cover things like surprise repairs or a sudden downturn in the real estate market. 

Ask the expert

Erin Kinkade

CFP®

I advise improving your credit before embarking on a fix-and-flip project and applying for a loan that would cost you more. However, everyone has unique circumstances, and beginning this journey may be a part of your plan to increase your credit and get into a better financial condition. Do your research and network with other individuals who are seasoned in working in this space. In addition, really think about what type of home they want to flip.If possible, have cash reserves and a plan B (and possibly C) if plan A does not come to fruition as expected.

How to get a fix-and-flip loan with bad credit

Once you have a property deal in the works, it’s time to submit your financing application. Here’s what to expect when applying for a fix and flip loan with bad credit.

Compare lenders

Most fix and flip lenders have clear eligibility requirements listed online. That way you only focus on the ones working in your credit range and experience level.

Get a funding timeline

Timing is important when submitting an offer on a property and closing with the right financing. When comparing lenders, choose one that can work on your timeline so you don’t miss out on a deal. 

Apply for the loan

When you’re ready, the fix-and-flip loan application usually starts with an online form, usually covering a general overview of your investment property. 

Review your quote

Based on the initial details, you’ll receive a loan quote from the lender. That helps you calculate whether the financing costs make the deal worth it. 

Submit documentation

You may need to submit quite a bit of documentation, such as:

• Renovation budget and contractor details
• Purchase agreement for property and evidence of earnest money deposit 
• Recent bank statements showing cash to close and project cash flow
• Proof of insurance coverage (including dwelling and liability coverage)

Talk to a loan officer

In addition to discussing your current project plan, also be prepared to talk about your previous experience with flipping homes or rental properties. 

Get an appraisal

Part of the underwriting process is a property appraisal. Most lenders have limits on how much of the property value they’ll finance, so this is an important step. 

Receive funding

Once the project is approved, your lender will walk you through the closing process and pay the seller with the loan funds. As you kick off the project, you’ll have access to construction draws to pay for supplies and contractor fees as they’re incurred.   

Alternatives to fix-and-flip loans for bad-credit borrowers 

Before applying for a fix-and-flip loan with bad credit, consider these alternatives as well.

Home equity loan 

The average homeowner with a mortgage has nearly $200,000 in available equity. Getting a home equity loan to finance a house flipping project is possible, especially if you don’t have previous experience.

The downside is that your home is used as collateral for the loan. While that can help you qualify with a lower credit score, it also puts you at risk of foreclosure on your personal property.  

Bridge loan

A bridge loan helps you get additional financing on a new or existing project. Consequently, this is an ideal solution for an experienced house flipper. 

Bridge loans usually last for less than a year and can be used to purchase a new property or refinance an ongoing project that takes longer than expected. 

Hard money loan

A hard money loan has no underwriting requirements and uses the property as collateral. That means you’ll need separate funds to pay for the renovation costs. 

Expect interest rates to be higher since credit isn’t considered. A hard money loan usually offers smaller funding amounts, so it may not cover the project’s entire cost.  

Ask the expert

Erin Kinkade

CFP®

When choosing fix-and-flip financing, make a pros and cons list to compare terms and interest rates of your options. Consult a trusted friend, advisor, or peer who works in the space. It could also be beneficial to consult or hire a financial/real estate professional as a business coach.

Fix-and-flip loan

How do market conditions affect fix-and-flip loan projects?

Market conditions play a crucial role in the success of fix-and-flip projects and can affect various aspects of the investment, including:

• Property availability and prices: In a seller’s market, where demand exceeds supply, finding undervalued properties to flip can be more challenging, and purchase prices may be higher, which can reduce profit margins. In a buyer’s market, flippers may have more opportunities to purchase lower-price properties.
• Renovation costs: The cost of materials and labor for renovations can fluctuate based on economic factors, including inflation and supply chain issues. Rising costs can influence the budgeting and profitability of a flip.
• Selling times and prices: Market conditions also influence how fast a flipped property can sell and at what price. In a booming real estate market, you might sell a property faster and at a higher price, whereas in a slow market, it might take longer to sell, and you may have to reduce the price, affecting the overall return on investment.
• Interest rates: Interest rates affect the cost of borrowing, including for fix-and-flip loans. Higher rates increase the cost of financing, which can eat into profits, and lower rates can make borrowing cheaper and increase profitability.
• Investor sentiment: Market conditions can affect investor confidence and willingness to invest in real estate projects. Positive conditions can lead to more competition among investors, and negative conditions might make investors more cautious.

Understanding these factors and how they interact with one another can help investors make more informed decisions about when to undertake fix-and-flip projects, how to budget for them, and what financing terms to seek. 

Awareness of market trends and economic forecasts can provide valuable insights for timing investments and managing risks.

What criteria do lenders consider for fix-and-flip loans?

Lenders typically evaluate the property’s after-repair value (ARV), the borrower’s experience in flipping houses, the project plan, and the financial capacity to complete the project. Credit scores may also be considered but are not the sole determining factor.

Are there different types of fix-and-flip loans?

Yes, there are several types, including hard money loans, private money loans, bridge loans, and home equity lines of credit (HELOCs). Each has its own set of terms, conditions, and suitability depending on the investor’s needs and the project’s specifics.